State of the City

Mayor Lee Leffingwell delivered his state of the city address at a Real Estate Council of Austin luncheon on Tuesday, Feb. 2. Below is the full speech, reprinted in its entirety from the city of Austin transcript.

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Thank you for that kind introduction, Keith. I want to extend my gratitude to Keith, and Janice Cartwright, and to the entire staff and Board of RECA, for inviting me to be here today. It's an honor and pleasure to have the chance to share my thoughts with you about the state of our city.

I understand from Janice and Keith that we have a sold-out event here today. So in order to help RECA out a bit, I've agreed to be the keynote speaker at every monthly luncheon from now on. We all know that the reason I'm such a popular keynote speaker is my intense personal charisma and my dynamic and inspiring oratory. So in case you find yourself overcome with emotion during my speech, please, don't be embarrassed to weep openly.

Before I get started I want to take just a minute to acknowledge a few folks who have joined us here today, starting with my colleagues from City Hall: Mike Martinez, Sheryl Cole, Randi Shade, Bill Spelman and Chris Riley.

I'm also honored that we're joined today by our City Manager, Marc Ott. If you haven't had a chance to get to know Marc yet, I encourage you to do so. He has been an exceptionally capable City Manager during a difficult period. Marc laid out a goal, when he got here, of making Austin the best managed city in America. And I think he has succeeded in moving us toward that goal, in a number of ways. So I want to recognize him now for his two years of good work on behalf of the citizens of Austin. Thank you, Marc.

We're also joined by a few other elected officials and community leaders who have already been recognized, so I want to add my thanks to them for joining us here today.

My friends and fellow citizens, we're here together at a unique and challenging moment in history. There are enormous events unfolding in the world around us. A global recession. A global war on terror. And, the global threat of climate change.

At the national level, we're struggling with debt and deficits measured in trillions, and divisive battles over huge issues like health care reform and energy policy. Here in Texas, we have a state education system that fails too many of our children – a state transportation network that falls far short of our needs – and a regressive state tax structure that feeds both of these problems, and more. When you factor in the Tiger Woods situation, it can be hard to get out of bed every day.

Very seriously, all of these monumental challenges make for a sobering backdrop as we forge our path into the future as a city. But, times of great challenge are also times of great opportunity. That's especially true if you believe in the power of a creative mind and a determined spirit to solve any problem.

I've spent practically my whole life in this city. I grew up just about a mile from here. Where we're enjoying our lunch today was – a hill. I went to Austin public schools, and graduated from UT. When I retired as a pilot, I became a full-time volunteer in Austin, for five years. Then I served on the City Council for four years before I became mayor.

After all of that, there's at least one thing I know about Austin. And that is that we do believe in the power a creative mind and a determined spirit to solve any problem. Austin is full of smart, driven people who make things happen. And lots of times, we even do it for the right reasons. That's exactly who's in this room around you right now. Look around. You're all a bunch of over-achievers.

So, if just for that reason – because we believe in Austin that we can solve any problem; because we believe that we can transform any challenge into opportunity – even during this monumentally difficult moment in history, the state of our city is strong.

It's a very tall order to present a full view of what's happening in Austin today without inducing an episode of mass narcolepsy. There are so many different issues that Austinites care about, and would consider basic to any fair analysis of our community's well being. Whether it's economic development, transportation, education, social equity, the environment, public safety, health care, race relations, social services, housing, parks, libraries, the arts, or any of a dozen other things – every issue is a top priority for someone.

So today, I'm going to exercise the luxury of having a few more of these speeches to give in the years ahead, and focus primarily on the one issue that is clearly critical to all of us right now. That's our economy. I want to talk about where it's been, where it is, and where it's likely going – and what that means from the City's perspective. I also want to talk about some specific areas that I believe we need to focus on now, in order to shape the best possible economic future for ourselves.

First, a few facts about Austin's past, which tell us something essential about our future. Two months ago, Austin celebrated its 170th birthday. When Austin was incorporated in December of 1839, our population was less than 500. By 1870, Austin's population had increased ten-fold, to 5,000 people.

From then, until now, we have doubled in size, like clockwork, about every 20 years. That's seven times that we've doubled in size over 140 years. Just since I've lived in Austin, our population has doubled not once, not twice, but three times. When I was born in Austin, the city's population was the same as Round Rock's is today. So take it from me, the question for Austin moving forward is not whether we will grow.

In fact, it's way past time to acknowledge that we're already a very big city. We are the 15th largest city in the country. Bigger in population than Boston, bigger than Denver, bigger than Seattle. Bigger than Baltimore, bigger than Atlanta, and neck-in-neck with San Francisco.

Obviously, these are all very different cities, each in a unique circumstance. But the first point is: We're not in a sleepy little college town anymore. And the second point is: What's past is prologue. Assuming the Mayans were wrong, and that we somehow survive beyond 2012, Austin's future of growth will reflect its history of growth. That means an Austinite born today will likely live in a city of nearly 1.5 million people – and a metropolitan area of well over 4 million people – by the time he or she is 40.

I believe wholeheartedly that our most basic responsibility as citizens of this special city should be to that future Austinite. If we're always thinking about him or her – if we're always asking ourselves: "Are we doing what's right to protect Austin's quality of life for the next generation?" – we can't go wrong. Or at the very least, we'll feel a whole lot guiltier about screwing things up. So, once again, the question for Austin is not whether we will grow. The question for Austin is how we will grow.

I think we can all agree here that a good quality of life begins with a good job. If we want to do what's right for the next generation of Austinites, we always need to be focused on building and sustaining a strong, stable, and diverse local economy. To put it another way, we know that our population will grow, so we need to make sure that our economy grows with it. Fortunately, we have a solid economic foundation to build on.

Austin is home to the fifth-largest public university in the nation. Without a doubt, U.T. is one our city's greatest assets, economic and otherwise. As I've said before, it's a university that our football team can be proud of. We're also home to the second-largest state government in the nation. There are more than 65,000 state employees in Austin, and they make a big contribution to our community.

Finally, we're home to a fundamentally strong and mature technology industry. Companies like Dell, IBM, Freescale, Applied Materials, AMD, Solectron, National Instruments, Samsung, Apple, and many others, earned us the nickname "Silicon Hills" more than a decade ago. And they are still central to our economy today.

In part because of this solid foundation, in many ways, Austin has weathered the "Great Recession" as well as any city in the country – and truthfully, far better than most.

For example: Over the last 24 months, we had a net loss of 2,600 jobs here in Austin. Compare that to what happened in some of our peer cities during the same time: Portland lost 50,000 jobs. Seattle lost 59,000 jobs. Boston lost 62,000 jobs. Remember that we're bigger than all three. Phoenix, the fifth largest city in America, lost 132,000 jobs. So while there's no joy in losing 2,600 jobs – especially if you lost one – comparatively, we've fared well.

Another example is home prices. Ours have remain almost unchanged over the past two years. In Las Vegas, home prices dropped 37% in 24 months. If you bought a home in Las Vegas in 2007, you might have done better to invest your money at the Bellagio.

The fact is, on jobs, on wages, and on other important indicators, Austin's economy has performed remarkably well during a turbulent time. And even though you can, you don't have to take my word for it. In November, the Milkin Institute said Austin was the best performing metropolitan economy in America in 2009. We were #20 in 2007; #4 in 2008; and #1 in 2009. Earlier this month, Forbes magazine said Austin was the #1 best big city in America for jobs. #1.

Last month, Grubb & Ellis said Austin has the best prospects of any city in the country for commercial real estate investments in 2010. #1. Two weeks ago, portfolio.com said Austin was the best city in America for small businesses. #1. Three weeks ago, Farmer's Insurance Group released a study that ranked cities based on a composite of economic indicators, crime statistics, environmental issues, and life expectancy. Austin was #1. You may be noticing a pattern here.

Please understand, none of this is meant to gloss over how tough things have been in Austin, in a lot of ways, for a lot of people, over the past 24 to 36 months. Even though our position is enviable compared to other cities, our 7% unemployment rate is still the highest its been here in 10 years. There are other big concerns, too.

Even though prices have been steady, home sales have been down – at a six-year low in 2009. Commercial and industrial vacancy rates have jumped significantly overall, and remain high, as I suspect you folks in this room know. Foreclosures have been rising for two years.

Venture capital investments in Austin have declined dramatically, especially in 2009 – down by more than 60% from 2008 levels, to a 13-year low. And, we're still experiencing a major credit crunch – in every sector – that's curtailing investment, slowing spending, and holding back growth. Most critical for local government, 2009 sales tax figures were way off – a 10% drop from the year before.

That obviously presents enormous challenges for us at City Hall, which I want to talk about here for just a minute. Folks, balancing your City budget this year was not a pleasant exercise for anyone. The bottom line was a $30 million funding gap in a $600 million budget. It's testament to the City management team, to the members of your City Council, but most of all to the 10,000 employees of City government, that we closed that gap and still maintained all core City services at their current levels.

Most significantly, there were no cuts to police, fire, or EMS services – which I promised there would not be. While our budget did include an increase in our tax rate and some utility charges, we still have the lowest municipal tax rate of any large Texas city. So – to beat a dead horse – we're proud of what we were able to achieve with this year's City budget. We can only hope to do as well next year.

But, once again, as tough as it's been, our 10% drop in sales tax last year compares very favorably to what other local governments around the country are experiencing. When you look at the big picture, while it's clear we still face big challenges, it's also clear that Austin is one of very best positioned communities in America to emerge from the recession stronger, economically, than before.

This takes us back to what the question is, and what it isn't. It's not if we'll grow. It's how we'll grow. What do we want Austin to look like – and to be like – in 2030, 2040, or 2050? More importantly, what do we need it to look like, in order to protect our quality of life for the next generation?

As I noted before, our technology industry – and especially our semiconductor industry – has been central to Austin's economic growth, and thus our quality of life, over nearly two decades. But it's time to face facts: Big chunks of the semiconductor industry have shipped overseas, and those jobs are not coming back. That doesn't mean our technology industry isn't important to Austin anymore. It absolutely is. It's critically important. And it will continue to be. Don't forget that Samsung's $500 million expansion of its Austin chip fab will make it the largest one anywhere in the Western Hemisphere.

But, as the nature and focus of the national and global economy evolves, so should the nature and focus of our local economy, if we want it to thrive into the future. And we obviously do. For this reason and others, this is the time to proactively, aggressively diversify Austin's economy.

We've been talking about this long enough that I think there is general agreement about where our economic focus should be moving forward: Renewable energy, creative media, and medical technology. These industries are the future of Austin's economy. They can, and will – if we play our cards right – form a new foundation of sustained economic growth into the next generation.

Renewable energy is a natural fit for Austin. We have a proud legacy of environmentalism in this community. We have the technical expertise and the drive to innovate. And, we are the capital city of the most important state in today's energy economy. There's no excuse for Austin not to be at the forefront of the global clean energy revolution happening today.

I want to make special mention of the Pecan Street Project, which is a collaborative effort of the City, Austin Energy, U.T., the Chamber, and a dozen other partners, to work on developing smart grid infrastructure in Austin. Two months ago, the Pecan Street Project won a $10 million federal grant – an indicator of its promise, and the promise of the clean energy sector as a whole for Austin.

Our second clear opportunity for economic diversification is in the world of creative media. Already, Austin is known internationally as a center of creativity. We are the "Live Music Capital of the World" – and our music industry continues to be critical to both our economy and our culture. Together, South by Southwest and the Austin City Limits Music Festival generate more than $150 million in economic impact every year.

I know it's only rock and roll, but I like it.

Our film and television industry continues to mature. As more state incentives come online, we'll be able to attract more studio and independent productions, and begin to reach a critical mass of local talent and facilities.

Video gaming is another creative media sector that has enormous economic potential for Austin. Overall, video game sales were down a bit in 2009, but still did more than $20 billion. To put that number in perspective, it's three times the size of total sales in the music industry last year. And Austin is in a very good position to bring home a healthy share of it. We've got steadily-growing group of game developers and distributors here in Austin now, but we want and need more.

Finally, everything happening with web-based services, mobile computing, and social networking also holds great promise for our city. This is where I believe we have a unique opportunity to marry our tech-savvy culture, and labor force, with the next generation of growth. In particular, I'd very much like to see some of the largest social media companies, like Twitter, establish a significant presence in Austin in the near future. Maybe Mike Martinez could get an internship there.

The third big opportunity for Austin is in the area of medical technology and life sciences. Already, some of our largest employers are in the health care sector: Seton, St. David's, Girling, and others. And one of our biggest ambitions as a city, and a region, is to become home to a full-fledged medical school. There are lots of creative, dedicated folks working hard on that goal right now. I'm absolutely determined to see it happen, and I'm extremely confident that it will happen.

But in the meantime, we need to be going full-tilt to build up our medical technology and life sciences sector. We took a good step in that direction last month, persuading Hanger Orthopedics to relocate their corporate headquarters from Bethesda to Austin. This was a major win – bringing a marquee company, and nearly 400 jobs in a targeted industry, here to Austin.

I want to acknowledge the good work of our partners at the Chamber of Commerce, and the City's economic development team, for making that deal happen. And, there are more to come. In the next few weeks, for example, we'll be looking at a deal with legalzoom.com, based in Los Angeles. So far, I like what I see.

To be clear, I do recognize that using incentives as an economic development tool can be controversial. And I'll also admit that I myself haven't always been crazy about some of our incentive deals. For example, I opposed the Domain incentive package several years ago – even though I did not support undoing that agreement at the ballot box.

But, I'll do deals like the one we did with Hanger every day of the week: Performance-based, judicious, focused on a targeted industry, good-paying jobs with good benefits, and cash-positive for taxpayers over the life of the deal. Moreover, tied to larger incentives from the state's Texas Enterprise Fund, which also have performance criteria that must be met. So I say, bring me more.

Now, I want to briefly mention two other areas where I'd like to see us continue and expand our economic development efforts.

First, tourism and conventions. From the City's perspective, there's hardly a more desirable industry. Here's how it works: You come to Austin. You spend your money here. You go home. Very good stuff. With all that we have to offer, Austin should be on the short list for every family vacation and corporate conference. But one critical bottleneck we must address is accommodations. We can take our convention business to a whole new level if we can significantly ramp up the number of hotel rooms downtown.

The Marriott project that had been planned for 3rd and Congress was going to deliver what we needed – around 800 rooms – but it didn't happen. It's obviously a tough time for a hotel project of that magnitude to find the capital it needs to go, but we're very much on the hunt for interested parties. So if you want to build a very large hotel in downtown Austin, call me and I'll buy you lunch.

Lastly, I want to talk about the importance of small local business. Here's a stat that may surprise you: 90% of companies in Austin have fewer than 10 employees. And about 75% of all Austin jobs are with companies that employ fewer than 100 people. I think those figures make it pretty clear how critical small local businesses are to Austin. They are really the backbone of our economy.

Overall, Austin appears to be a pretty healthy environment for small business owners. Between 2007 and 2008 – the latest period for which we have national data – the number of small businesses in Austin grew by about 6%. During the same period, in other metro areas across the country, the average was about 1.5%.

While successful small businesses are good for Austin in and of themselves, it's also true that sometimes, small local businesses become very big local businesses. My friend Pike Powers recently told me a story about how he was introduced in 1980 to the son of a friend, who was starting a new small business, and needed help incorporating. The young man's name was John Mackey, and his new business was an all-natural grocery store. Mr. Mackey and some rather colorful associates came to Pike's office, and Pike helped them file their papers. After they left, Pike turned to his assistant and said: "Those guys will never make it."

Not every business is Whole Foods, of course – but not every business has to be to make an important contribution to Austin's economy. At City Hall, we're committed to doing all we can to nurture our small local businesses, and help them grow. We have a very strong small business development program. We've also recently launched some new initiatives, like a scoring matrix for city contracts intended to help Austin-based firms win city business whenever possible. I'm also announcing here today that I'll be convening a "Mayor's Summit on Small Business" in late March. At that event, we'll bring together local entrepreneurs, policy-makers, Chamber leaders, and others, to explore new ways to continue to support our base of small local businesses.

With all of that said, moving forward, if we want to build and sustain a strong, stable economy, we not only have to shift the focus of our economic development efforts, as I've just described. We also have to invest now in infrastructure and systems that will support us into the next generation. Specifically, we need to be sure that we have reliable sources of water – sustainable sources of energy – and a robust, multi-modal transportation network. Without these fundamentals, the growth that is coming to Austin will degrade our quality of life, rather than enhance it.

First, about water. A few months ago, after more than 25 years of debate, we finally won Council approval to move forward with construction of Water Treatment Plant 4. As you know, it wasn't easy. There was division in the community over the plan, and there was division on the Council. Ultimately it passed on a vote of 4 to 3. I respect my Council colleagues, and I don't begrudge any of them their views. But, when Austin looks back on that decision a generation from now, I believe there will be broad consensus that it was the right thing to do. WTP4 is the water plant of our future. It will ensure that we have a reliable supply of clean drinking water through the end of the century.

We're also very fortunate that a previous mayor, Kirk Watson – some of you may have heard of him – negotiated an agreement with the LCRA that gives us water rights that may be superior to those of any other Texas city. I won't go into all the numbers, but suffice it to say that we owe Senator Watson a debt of gratitude. And overall, we are in a very good position when it comes to water supply.

Now our conversation about water needs to shift focus, to conservation. Conserving water is not only the right thing to do from an environmental standpoint, but also from an economic standpoint. The less water we use, the less we have to buy, and the less we have to pay to treat. Given especially that there are significant cost triggers built into our agreement with the LCRA once we pull down a certain amount of water, the more water we save now, the more money we save later. We do already have an aggressive water conservation plan in place. But we can do more, we should do more, and I hope all of you in this room will commit to help us do more.

Now, energy. As you know, we're in a very fortunate position in Austin to own our electric utility. Not only do the utility's dividends support our General Fund to the tune of about $100 million every year, our ownership also puts us in a position to shape our own energy policy. And to quote Spiderman's Uncle Ben: "With great power comes great responsibility."

As I mentioned before, the reality of climate change is one of the huge challenges facing our world today. In 2007, I was a co-sponsor, along with my predecessor Mayor Wynn, of the Austin Climate Protection Plan. That plan said that Austin should be a national leader in reducing carbon emissions. And because we care about children and grandchildren, we should.

That doesn't mean, however, that our transition away from fossil fuels to clean, renewable sources of energy should come at any cost. As you probably know, we're now debating Austin Energy's proposed future Generation Plan, which has been more than two years in the making. That plan lays out a strategy for reducing Austin Energy's carbon emissions by 20%, from 2005 levels, by 2020. We'll likely vote on that plan at Council sometime next month.

I'll tell you right now that I support the carbon reduction goal in the plan. And I support the staff's recommendations for how we achieve that goal. But, we also know that the energy marketplace is changing very fast. Technology is advancing, federal legislation is pending, costs are shifting. We also have a major cost-of-service study, and a rate case, on the horizon.

So before I vote to adopt the Energy Generation plan, I want to see maximum flexibility built into it, so that we can adapt quickly to rapidly-changing circumstances – especially with regard to cost. I think most Austinites want to do the right thing for our environment. But, we have to proceed in a way that ultimately grows our economy, not undermines it. Personally, I think that demonstrating national leadership on our clean energy policies will reap great rewards for us as we work to grow our clear energy sector.

Finally, transportation. Here's a #1 ranking we'd rather not have: For most of the past decade, the Texas Transportation Institute has ranked Austin #1 for traffic congestion among all mid-sized U.S. cities. The only reason we're not #1 in 2009 is because we're no longer in the mid-sized city category. We're now in the large-sized city category. So congratulations – you now live in the 14th most congested large city in America.

As if that weren't enough, you probably get to drive pretty regularly on the 4th most congested road in the country, which is I-35 through Austin. It's worse than anything in New York, Chicago, Dallas, or Houston. Folks, our traffic stinks, and everyone knows it. And unfortunately, it's way more than just a nuisance. In all sorts of ways – economic, environmental, and social – it's a deadly serious threat to our quality of life. Unless we deal head-on with our traffic crisis, starting now, we'll end up paying a very big price.

As a city, we have made some progress recently. We've created a Transportation Department, hired a Transportation Director, and started developing a local Strategic Mobility Plan. That plan will include what's called a Gaps Analysis, so we can all see where our biggest traffic problems are, and prioritize our approach to fixing them.

We've also seen some actual progress lately – including a financial plan to build the missing overpasses at I-35 and 290, and MOPAC and 290. I don't know about you, but those flyovers to nowhere have been bothering me for years – so I'm happy to report today that work on those two projects will begin by the end of summer. That's good.

But, solving problems as big and as serious as our traffic problems have become demands a generation-long view, and a multi-modal approach. There are no quick fixes, and there are no silver bullets. Taking on traffic requires vision, leadership, and action, from all of us – every day, every week, every month, and every year – starting right now.

For over a year now, I've been calling for a 2010 transportation bond election, which would include new investments in roads, in bicycle and pedestrian infrastructure, and in the first phase of an Urban Rail system. Our transportation team at City Hall is working hard on that proposal right now.

There are still some big questions left to answer, but I'm cautiously optimistic that a well-developed proposal will be ready in time to go to Austin voters this November. Ultimately it will be up to the City Council – with help from the CAMPO Transit Working Group – to decide whether or not to put that proposal on the ballot. Then it will be up to you to decide whether or not to support it.

I won't tap-dance around the fact that it is going to cost taxpayers something to make these investments. And I know there will be some skepticism, both about pursuing a bond proposal, and about building an Urban Rail system, during this time of economic uncertainty. Some people oppose building rail of any kind, at any time, any place, end of story.

But in my opinion, this is exactly the time for us to invest in protecting Austin's future quality of life. I also believe that Urban Rail specifically may be the single best thing we can do to keep the economic engine of downtown Austin running strong for the next generation. But most importantly, I know we have a very long journey ahead of us to truly address our traffic crisis challenges. I believe that this bond proposal can, and will, prove to be the right first step on the long journey. And, I know it's a better strategy than the alternative, which is doing nothing. So, all I would ask is that you study the proposal carefully and objectively when the time comes. And then decide to support it.

I can't talk about our population growth, or about diversifying our economy, or about investing in our future, without at least mentioning the importance of diversity and equity to Austin.

Here's something most people don't know: At some point over the last 36 months, Austin became less than 50% Anglo. That's not because the number of Anglos didn't grow as fast as ever before. It's because other ethnic groups grew faster than ever before. When we have the new census results next year, we expect that Hispanics will make up 37% of Austin's population, African-Americans will make up 7%, Asian-Americans will make up 7%, and another 2% will be other ethnic minorities.

Austin is a diverse city. Much more so than it has ever been. We should be proud of that. We should celebrate it. And, we should be sure that it's always reflected in our decision-making, and our actions, as a community.

Austin is also a caring and compassionate city. A lot of people in this town wear their hearts on sleeves. That's a big part of what makes Austin special – and a big part of what we need to preserve to keep Austin special. The hungry, the poor, the homeless, the sick, the disadvantaged: They have a friend in a true Austinite. As Austin grows and changes, I hope and trust that we'll never lose what my friend Rev. Joseph Parker calls our "moral center" – our drive to do good, to be fair, and to be giving.

Let me end where I began. Friends, the state of our city is strong, even at this incredibly challenging time, because here in Austin, we believe in our own ability to make things better. We know we can create solutions to problems. In an uncertain world, these are our secret weapons: Our ingenuity and our conviction. Our creative minds, and our determined spirits.

If you want to play a role in shaping our best possible future – in protecting our quality of life for the next generation – then I encourage you to leave here today and go do what you do best: Create. Solve a problem. Do a deal. Be bold. Make a difference for somebody.

I can't stand up here today and tell you that the worst of what's happening around us is over. The truth is, it may not be. But, after a lifetime in this city, I know the fiber of Austin, Texas. I know the character of the people who live here. And I can stand up here today and tell you – with great confidence – that for us, the best is yet to come. Thank you very much.